Commercial Mortgage Lending: Government (Fannie & Freddie) Supporting Multi-Family (Apartment) Lending – Lenders Have Billions to Lend

The credit markets are extremely tight today. It is nearly impossible to get a commercial mortgage for land or development, and almost equally difficult to find financing for retail, hospitality or office properties. The economic recession and the credit squeeze have combined to devastate the commercial real estate finance industry.

There is, however, at least one bright spot in the world of commercial mortgages; multi-family (apartments). Despite a severe contraction in the credit markets there is no lack of liquidity for multi-family loans. Property owners and investors will find plenty of money available for the purchase and the refinance of good quality apartment buildings.

Stabilized (low vacancy, good income) apartment properties make excellent collateral for commercial mortgage lenders. Because of their steady cash-flow they hold their value well and sell quickly even in down markets. In the world of commercial real estate multi-family is the most prized asset class. Multi-family properties are certainly not immune to economic realities but lenders know that apartments have a relatively strong track record in all economies.

The quasi Government entities Fannie Mae and Freddie Mac are offering tremendous support to the multi-family sector. Fannie and Freddie are buying huge amounts of apartment mortgage paper including purchase loans, refinance loans and even construction loans. The dollar amounts are staggering, these agencies have committed hundreds of billions to fund apartment buildings.

Bankers, Wall Street Brokers and Hartford insurance companies know that any multi-family loan they write to Fannie or Freddie’s specifications can be sold and turned into cash on any business day. That’s why lenders are not afraid of apartment building loans and will still originate them when the opportunity presents itself.
Borrowers or deal sponsors with good credit offering a quality apartment building as collateral should have no problem securing a commercial mortgage loan at a low interest rate and on excellent terms.

Loan-to-value ratios (LTV) are lower today then they were a few years ago but many lenders will still lend up-to 75% of a properties value. Apartment buildings need to have strong operating income in order to qualify for institutional funding and they have to be in good condition. Borrowers need to have a decent credit score of 640 or better and should be able to demonstrate a net worth and savings commensurate with the loan being sought.

Most multi-family commercial mortgages have fixed rates for a period of 5, 7 or 10 years but are amortized over 25 or 30 years to keep the payments low. Rates are based on an established index such as the yield of the 3 or 5 year U.S. Treasury Bond. A margin of 3%-5% is added to the index rate to establish the mortgage rate. If the short term Treasury is low, as it has been recently, investors can expect quotes of 6%-8% depending on the lender.

It’s not “easy” to get loan, but good quality multi-family deals are getting funded. Deals or borrowers who don’t meet the new, tougher standards will have to look to private funding sources and will be forced to pay higher rates and points.

MasterPlan Capital LLC has a new, small balance ($1MM-$5MM), multi-family commercial mortgage loan program and is actively funding the purchase and refinance of stabilized apartment buildings. We have over $100MM in lending capacity dedicated to small multi-family loans. Borrowers may apply online. Our simple, 1 page commercial mortgage loan application takes only a moment to complete and we will respond the very next business day.

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